The First Steps An introduction to the future of small business

M A K E WAY

EDITOR

Caleb Kramer
P UBLISH ER

Mitch Kapler
PRO DU C E R

Kyle Studstill
ART DIRECTOR

Monica Nelson
DESIGNER

Lizania Cruz
PH OTO G RAPH E RS

Brian W. Ferry David Brandon Geeting

COPYWRI T E R

Spencer LaVallee

All images (where applicable, of course) and text MAKEWAY 2013. This work is distributed under the Creative Commons Attribution-Noncommercial-Share Alike license. If you wish to use or reproduce any of this content in a commercial context explicit permission is required. Please contact us directly. This work is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States License.

T A B L E O F C O N T E N T S

H I , W E LCOM E TO M AK EWAY

A B O U T

PROLOGUE AN UNSEEN SOURCE

CHAPTER ONE DATA IS THE NEW OIL!

McNally Jackson and survival of the ittest. p. 6

The Rise of Square, and gelato. p. 14

CHAPTER TWO IN IT TOGETHER

CHAPTER THREE CO-CREATE

Crowdfunding and the rally call. p. 24

More than a shaker, the aftermath of kickstarter. p. 38

Todays economy is portrayed as one lled with small business turnover and nancial turmoil. Were told that the very people who make America one of dreams are the ones struggling to survive. Yet, living and working in New York Citys Lower East Side, were witnesses to an exuberant class of entrepreneurs lling our community with diverse cuisine, fashion, art and business. Despite the frightened media perception, creative business men and women are harnessing technology to deliver a meaningful brand and a superior product, with fewer resources. As our conversationsand observationsbecame increasingly more absorbed by this commerce takeover, we decided to take time o from our nine-to- ves in digital marketing to dig in. We hit the streets - across the country, meeting up with small business owners, technology startups and various experts, and we dove into prescient academic research. Overthe past year, our appreciation for small businesses has only grown as weve documented the passions that drive tomorrows economy. MAKEWAY is an editorial journey. Its our story; its the story of todays creative entrepreneur; its the inspiration behind the next great story to shake America. This is just the beginning; we look forward to writing the next chapter with you. Enjoy! Caleb, Kyle and Mitch

CHAPTER FOUR ON BEING POWERFUL

EPILOGUE THE WAY FORWARD

Authenticity, relationships, and the new craftsman. p. 56

Make your way. p. 64

P R O L O G U E

PROLOGUE : AN UNSEEN SOURCE

P R O L O G U E

We are living in a storm where a hundred contradictory elements collide; debris from the past, scraps of the present, seeds of the future, swirling, combining, separating under the imperious wind of destiny.
Adolphe Rett, La Plume In the beginning there was change. Seasons would come and go, the tide rose and it fell the world rotated to a particular rhythm. It was expected. More recently, however, something about change itself began to change. It accelerated. What once o ered a subtle sense of security now presents itself as reason for uncertainty. Moving so fast is disorienting. Go no further than Main Street to see the e ects of accelerated change in action. With every new store opening comes another closing. Each wave of ambitious young upstarts throws the rest o balance, testing the endurance of those who came before them. Despite this constant uncertainty, there are still those that nd ways to not only survive, but to ourish. McNally Jackson, one of New York Citys nest independent bookstores, was the rst that we came across in our journey. Positioned in Lower Manhattans SoHo neighborhood, it has a gravitational pull that draws many unsuspecting customers in through its front doors. Step inside and youll notice how everything serves a purpose. End tables pepper the oor, featuring books arranged into thoughtfully curated collections, thoughtfully teasing customers to come in just a little further. Then, to the left, theres a cafe that o ers nourishment and generates positive energy for the rest of the space. At some point, theres nothing one can do but surrender to curiosity, a hypnotic e ect that is obviously good for the business. McNally Jackson has seen it all. It has lived through a decade full of conversations about the rise of Amazon and e-commerce, about digital publishing threatening to bring on the death of the book and about bankruptcy of booksellers that had since existed for over 20 years. Its a wonder that the business is doing so well. Businesses rise and they fall, but some, like McNally Jackson, live on through some sort of renewable energy. Theres something mysterious at play here, something deeper than good bookkeeping and a great location. Are there others that have it gured out? There must be. Who are they and what is it that enables them to survive constant change?

Adapt or die:2-6

Businesses of all sorts French bistro in Manhatare struggling to adapt tans Lower East Side, to the changing ecoknown among its artist nomic landscape. A and writer customers as variety of decades-old one of the last great bohemian enclaves. establishments have Parting words: closed their doors The neighborhood has forever.
changed...the original clientele has moved elsewhere. -Lucien Bahaj, owner
BLEECKER BOBS

(1998-2013)

PIN K PON Y

Parting words:
The area no longer supports this kind of establishment... Bay Ridge is more of a fast food kind of place now. -Roger Desmond, co-owner

P R O L O G U E

(1940-2013)

LENOX LOUNGE

Jazz spot in Harlem that hosted greats like Billie Holiday and Miles Davis.

Parting words:
Im sad about it, but Im realistic. I cant do too much about it. -Alvin Reed, Owner

( 1967-2012)
Greenwich Village record store that was a notable favorite among music legends like Robert Plant, Frank Zappa, and David Bowie.

Parting words:
The whole village is changing, especially this neck of the woods. Things are getting little more upscale. -John DeSalvo, long-time employee

American cuisine establishment that overlooked a series of surrounding Central Park gardens, often ranking among the highest-grossing independent restaurants in the United States prior to its late-decade closing.

(1934-2009)

TAVERN ON THE GREEN

Parting words:
In ling bankruptcy, the restaurant cited the national nancial crisis as instrumental in its closing. -Anonymous

(1950-2013)
Mid-century diner in deep Brooklyns Bay Ridge, selling old-fashioned soda fountain drinks, classic burgers, and egg creams for over 6 decades.

HINSCHS

P R O L O G U E
Br o ad w ay

H ou ston

St.

P R O L O G U E

Cr os by St.

Br oa dw

St. Pr inc

MCNALLY JACKSON:
Cr os by S

eS t.
Mott St

Laf a

y et t e

St .

The Quick Facts Found at:

52 Prince St., next to the modern-looking mac & cheese bar.

t.

Pr in ce St .
rry S t

Its been here since:

December 2004.
10

Best time to go:

Try stopping in for the small business book club, 2nd Tuesday of each month.

Mulb e

Mulb e

Pr inc e

La fay ett eS t.

ay

rry S t

11

Check out the:

Featured local authors who sell from the in-store selfprinting machine.

Snack on:
The treat that is paired with your favorite authors quote on the menu.

P R O L O G U E

P R O L O G U E

12

13

C H A P T E R

14

CHAPTER ONE: DATA IS THE NEW OIL

O N E

15

C H A P T E R O N E

Two scoops of ice cold gelato. $4.25. Deal! Swipe.

$0.12 is sent o as a processing fee to a company far away in the form of ones and zeroes, while the remainder goes down in the books of il laboratorio del gelatoice cream connoisseur Jon Snyders experimental kitchen in New York Citys Lower East Side. And with that, were left to enjoy one of over 64 million possible avor combinations. A simple swipe that comes with a tasty treat. il laboratorio del gelato uses Square, a service that allows anyone with an Android or iOS powered mobile device to accept electronic payments. Merchants sign up to receive a free physical card reader that plugs directly into the audio jack of a smartphone or tablet. Its a sleek looking contraption, easy to use, and unsurprisingly...its square. The rest of the service comes in the form of two separate appsone for customers and one for businesses. The rst app is Square Wallet, used by customers to make payments and set up tabs. The second, Square Register, is an iPad app that e ectively replaces a merchants cash register. Transactions are charged at a low rate of 2.75%. Like many startups, Square was born out of a real life problem. The idea was conceived in early 2009, when artist Jim McKelvey was struggling to sell a $2,000 piece at an art fair. People dont carry around that kind of cash and credit cards werent an option either. McKelvey explained his problem to friend and Twitter creator Jack Dorsey, who then helped brainstorm and prototype a solution that would eventually become Square.
FEB 2013 The Business in a Box turnkey POS system launches for small business owners MAR 2012 DEC 2012 Square introduces gift cards NOV 2012

THE RISE OF SQUA RE

OCT 2012 Merchant Directory launched AUG 2012 Square introduces a monthly pricing option for business customers MAR 2012 Square debuts the iPad Register app with analytics. Card Case becomes Pay With Square

C H A P T E R O N E

$32Mest
$35M

MAR 2009

Jim McKelvey brainstorms the early concept with Jack Dorsey

MAY 2010

$28M
$30M

Square launches as an app in the iPhone App Store that allows people to accept payments through the hardware plug-in
NOV 2011 Card Case iOS App adds support for hands free payment NOV 2011

JUN 2012 Square Register integrates a loyalty punchcard program JUN 2012

$25M

$17M

16

FIRST MILLION DOLLARS PROCESSED PER DAY AFTER 2 YEARS OF ITS IDEATION

$20M
APR 2012

17

$14M

$11M

$15M

MAY 2011 Card Case and Register apps launch, separating the service for business owners and their customers

$10M

Product Bechmarks

JUL 2011 MAY 2011

$4M

$3M

$5M

MAR 2011

$1M

Marketing Benchmarks

2011
FEB 2011 Square turns 2, celebrating with a Times Square billboard

2012
JAN 2012 Obama campaign uses Square for fundraising APR 2012 Jack Dorsey interviewed by Charlie Rose AUG 2012 Square begins point-of-sale partnership with Starbucks

2013
FEB 2013 Square begins partnership with Blue MAR 2013 Square is covered by 60 Minutes

APR 2011 Sales placement on Apple's online store

MAR 2012 Partnership announced with New York City Taxi Commision

C H A P T E R O N E

18

Just a few years later and Square is being used by millions of sellers across North America. Garage sales, fashion boutiques, restaurantsyou name it, anywhere business is being done, Square is there. Even Starbucks is involved, with over seven thousand of its stores now accepting Square Wallet. What drives Squares success is its simplicity. It re-imagines the most fundamental building block of commerce: the exchange. Square makes this ordinary and everyday process seamless and even enjoyable for people on both sides of the counter, setting a bar that has been hard for its many competitors to live up to. Today, Square is tracking at least $15 billion in transactions a year . If you do the math, thats an average of $41 million a day and almost $2 million an hour. It makes our two scoops of gelato look like a blip on the radar. And it is a blip, but it is not forgotten. Because Square is a product of the Internet age, our purchase is captured and analyzed alongside every other purchase being made with Square. Somewhere behind closed doors, Square is watching the pulse of grassroots commerce happening in real-time.

DATA IS TH E NEW OIL!

AV ERAG E TRANSACTIONS

12 9 6 3

$41 M A DAY

In 2011, the New York Times published an article comparing data to coal and iron ore of the Industrial Revolution. The McKinsey Global Institute declared data to be the next frontier for innovation, competition and productivity. Its thanks to startups like Square that small businesses now have access to data as well. Until recently, small business owners had only pen and paper to track

transactions. Now they have access to digital tools that are comparable to those being used at large corporations. With analytics tools now in their hands, business owners can sift through historical transaction data to nd insights that will help optimize inventory, hours, sta ng, and promotions, all of which can ultimately result in better customer service. Anyone can now mine for oil.

C H A P T E R O N E

12 9 6 3

$2M AN HOUR

19

20

How many cups did they sell that day, or what percentage of people bought biscotti? What was their busiest hour; which is their busiest day? A key di erentiator in terms of running a successful business is understanding how it is performing and getting clear, simple data that aids decisionmaking... We put a high premium on the data that we are giving to our merchants, so that they can build their business and ... recognize and treat customers better.
JAC K D O RS E Y, C EO S Q UA R E 5

21

C H A P T E R O N E

Another way data is helping small businesses become more e ective is through reinforcing customer loyalty programs. Classic marketing theory tells us that 80% of a companys pro ts come from 20% of the customers. It goes without saying who to invest in. New digital services not only help identify this 20%, but go a step further to craft highly detailed

pro les of individual customers. Instead of simply rewarding a customer with a free cup of co ee every sixth purchase, you can now o er their favorite snack with a handwritten note. Square and similar services are making life a whole lot easier for small business owners. Through mobile interactions, it is now easier than ever to gather

timely and reliable information about customer behavior and preferences. But there is still an elephant in the room. Taking action can be risky, even with an abundance of information. Developing new products and services consume both time and money, resources that arent exactly easy to come by. Are these digital tools really helping us innovate

fast enough or are they just optimizing our existing strategies? Real transformation exists outside of the box.

C H A P T E R O N E

Loyalty Programs for the Small Business

A number of digital loyalty programs now offer solutions that let small businesses leverage customer data, helping to lock in that vital 20% of customers.

LevelUp
est. 2009

Sweet Tooth

est. 2010

FiveStars

est. 2011
They say they are:

Belly

est. 2011

LevelUp

est. 2011

PunchTab

They say they are:

They say they are:

They say they are:

They say they are:

22

A turn-key points and rewards app for your eCommerce store.

What stands out:

O ers the backend for a fully-customizable points system to reward customers for their online activity.
The damage:

A card that helps local businesses build digital connections with their real-world customers, resulting in increased engagement and ultimately more business.
What stands out:

A universal loyalty program that o ers exceptional rewards at the businesses you love, giving boring loyalty campaigns a good kick in the pants!
What stands out:

The fastest (& cheapest) way to accept mobile payments and engage with customers with a high-tech loyalty program.
What stands out:

A service for publishers, retailers and applications vendors to develop an integrated rewards program with no development or marketing cost.
What stands out:

23

Starts at $49 a month for startups, $127 a month for small businesses, and also o ers custom packages
Found at:
www.sweettoothrewards.com

FiveStars integrates with existing point-ofsales systems, requiring customers only carry a card that is scanned by the business sta . Once a customer has scanned, they can be reached with demographic-tailored promotional messages over text and social channels that they have linked to their card.
The damage:

In addition to the standard points system that businesses customize through their individual iPad scanners in-store, the Belly email newsletter delivers customers personalized Belly Bites discounts and incentives towards places they havent yet been to.
The damage:

By integrating the payment system into the app itself, customers who have downloaded the app and linked their credit card information have the point-of-sale and the loyalty card both within their smartphone.
The damage:

2% per transaction
Found at:
www.thelevelup.com

The platform incentivizes online activity from customers, awarding them redeemable points for sharing promotions over social networks, signing up for email newsletters, visiting webpages, and participating in online sweepstakes.
The damage:

Starts at $79/mo
Found at:
www.bellycard.com

Starts at $99/mo
Found at:
www.punchtab.com

Varies
Found at:
www. vestars.com